New York begins tax collections on Indian cigarettes

By Michael Gormley
Albany, New York (AP) July 2011

New York’s renewed effort to collect taxes on cigarettes and tobacco products sold by Indian-operated companies has led to seizures of $1.2 million worth of untaxed tobacco products in the last three weeks outside Indian land.

Inspections at 357 retailers by state and federal law enforcement resulted in the confiscation of almost 20,000 cartons of cigarettes and nearly 25,000 cigars, Lt. Gov. Robert Duffy said. The inspections included off-reservation Indian shops and non-Indians selling untaxed Indian tobacco products.

It’s the first step in a new enforcement program that is expected to bring $27 million in tax revenue to the state this fiscal year. Enforcement will continue to include inspections of retailers and stopping vehicles carrying tobacco products.

The announcement follows nearly two decades of failed efforts to tax Indian cigarettes, some of which led to violence. Gov. Andrew Cuomo promised to secure the lost tax revenue and create a fair market for non-Indian businesses operating near reservations.

Courts have sided with New York in its current effort to collect taxes from wholesalers and in distribution off the reservations.

Future steps could include trying to collect taxes on the growing trade in cigarettes manufactured by Indian-owned companies. Tribes, citing federal treaties guaranteeing their sovereignty, argue they are exempt from taxation.

“We will never take any action to collect state taxes or allow the state to do so on our territory. That is not something that’s open for discussion,” said Seneca Nation President Robert Odawi Porter.

Porter said the courts don’t allow for taxation of tobacco products manufactured by tribes.

While the Senecas in Western New York are the biggest sellers of national name-brand cigarettes, the Oneida Nation in Central New York has turned to manufacturing its own brands and selling them in their stores and its Turning Stone Casino.

The Oneida Nation stated it won’t interfere with the state’s effort to collect tax from non-Indian cigarette manufacturers and sellers, but cites federal law that prohibits taxation of cigarettes made and sold on a reservation.

The state appears to dispute the tribes over whether it can collect taxes on Indian-manufactured cigarettes, but Duffy wouldn’t answer questions on whether the Cuomo administration will try. He said the administration will seek further negotiations with tribes.

The state’s enforcement action also targets untaxed cigarettes from southern states and from Internet sales, but much of the most visible enforcement will involve the lucrative tribal sales in central and western New York. The tribes serve customers globally as some of the biggest sellers of cigarettes.

The seizures have been made since June 21, when a court lifted a temporary restraining order against the state’s enforcement. Since then, Director of State Operations Howard Glaser says there has been an “uptick” in the distribution of properly taxed products.

“There clearly has been a division from unstamped to stamped products,” he said.

Glaser and Duffy, a former Rochester mayor, wouldn’t discuss what the phase-in of more enforcement will mean or how it will be conducted.

“It would be bad for us to signal what will and won’t be done,” said Duffy, a former police chief. The plan is focused on enforcing the tax law at the distribution and retail levels, off reservations and Indian-owned land.

“I don’t think anyone goes on tribal lands to take any enforcement activity at all,” Duffy said, adding there is “great respect” for the sovereignty of Indian land.